Market volatility hamstrings EM trading; most bonds unchanged, wider; oil prices boost some

By Christine Van Dusen

Atlanta, Aug. 31 – Emerging markets bonds drifted wider on Monday as equities sold off amid continued market uncertainty, crude prices rose and trading was quiet for the holiday in the United Kingdom.

“The Fed’s policymakers have announced that, despite a high level of market volatility, they are staying the course. A group of authorities are expecting that inflation in the United States will start to increase as the main factors holding down inflation dissipate further,” according to a report from Schildershoven Finance BV. “They also cautiously signaled that September is still on table for an interest rate hike.”

But other officials from the Fed have said a rate hike in September is becoming less likely.

“According to the market, the probability of the first interest rate hike happening in September amounted to 38%, while it was 24% on Aug. 26,” the report said. “The market estimates there is a 49% chance of the Fed’s decision happening in October. The growing probability of an earlier interest rate decision will negatively influence the market.”

In response to the volatility and the U.K. holiday, volumes were light for emerging markets assets on Monday, a London-based trader said.

“In the absence of any specific news flow to boost risk appetite, credit markets are drifting wider,” he said.

Bonds from the Philippines were mostly unchanged amid limited liquidity while high-grade names from Asia moved no more than 2 basis points wider, he said.

“After a firm Friday night, Indonesia’s 2045s – up at 93 left bid, at the time – are now down ¼ point in the belly from the Friday close and down 1/8 point on the long end,” another trader said. “The 2045s are wrapped around 92¼.”

Tone ‘constructive’ for Asia

Flows for bonds from Asia remained light into the New York close, another trader said, but the tone was “constructive.”

“Some month-end consolidation trades from accounts,” he said. “Otherwise, the tone was firm in most Asia sectors.”

China-based Cnooc Ltd. saw some demand on the strong performance of crude, he said.

Quiet morning for Lat-Am

Meanwhile, trading of Latin American assets on Monday morning was “very quiet,” a New York-based trader said.

In the afternoon, Latin American spreads moved out about 15 bps amid super-thin liquidity, another trader said.

Bonds from Corporacion Nacional del Cobre de Chile (Codelco) widened again and saw very few inquiries on Monday after the previous week’s spike, he said.

“They have now moved a total of about 75 bps to 85 bps in both directions since Aug. 20,” he said. “Huge movement for that curve.”

And corporate bonds from Colombia were weak on Monday, he said.

Venezuela prices rise on oil

From Venezuela, prices moved higher by as much as 3 points on Monday afternoon, boosted by the rising price of oil, another trader said.

“The move higher in crude is helping all prices across the curve, with intermediate and long dated bonds outperforming,” he said.

Sovereigns widen

Other sovereigns from Latin America widened into the end of the day, another trader said.

Five-year credit default swaps spreads for Brazil moved to 347 bps from 329 bps, while Mexico’s traded at 145 bps, from Friday’s 142 bps.

Argentina’s bonds finished the day mostly unchanged, he said.

“This morning saw better buyers, but later in the day we saw better sellers,” he said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.